Petroleo Brasilieiro SA v ENE Kos 1 Ltd

Factual and Procedural Background

This case arises from a long-term charter agreement dated 2 June 2006, under which the Plaintiff (as owner) chartered a vessel to the Defendant (as charterer). The charter required monthly hire payments in advance, with the express right for the Plaintiff to withdraw the vessel if payment was not made on time. The June 2008 hire payment was due by 31 May 2008 but was not paid. Upon confirming non-payment on the next banking day (2 June 2008), the Plaintiff withdrew the vessel. The Plaintiff sought a declaration that the withdrawal was valid and lawful and applied for summary judgment dismissing the Defendant's counterclaim. The Defendant contested the Plaintiff's entitlement to withdraw and argued a potential waiver of the right to withdraw. The court conditionally refused summary judgment on strict terms that the Defendant pay into court US$500,000 by 27 February 2009. The Defendant lodged a cheque for that amount before the deadline, but the funds cleared after that date. The Plaintiff contended that cleared funds were required by the deadline. The judge ruled that cleared funds were necessary, and the Defendant appealed.

Legal Issues Presented

1. What is the effective date of a payment into court when payment is made by cheque: the date of cheque receipt by the court or the date the funds clear?
2. Does it make a difference if the cheque is in a foreign currency?
3. Did the Defendant comply with the court order requiring payment into court by 27 February 2009?
4. Should the court have exercised its discretion to relieve the Defendant from the sanction of failing to comply with the order?

Arguments of the Parties

Appellant's Arguments

• The Defendant argued that lodging the cheque before the 27 February deadline complied with the court order.
• Alternatively, if non-compliance was found, the judge should have exercised discretion under CPR 24.2 not to grant summary judgment.
• Alternatively, relief from sanction under CPR 3.9 should have been granted by extending the time for compliance.
• The Defendant relied on the interpretation that the order required payment into court as defined by the relevant rules, which treat the date of receipt of the cheque by the Court Funds Office as the effective date, not the date of clearance.
• The Defendant contended that payment by foreign currency cheque is an approved method of payment into court.

Respondent's Arguments

• The Plaintiff contended that mere delivery of the cheque before the deadline was insufficient, and cleared funds were required by that time to satisfy the order.
• The Plaintiff relied on the wording "on strict terms" in the order and the temporary receipt from the Court Funds Office stating clearance could take 6 to 8 weeks.
• The Plaintiff argued that the Court Funds Office website indicates that foreign currency payments by cheque are not an approved method.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Homes v Smith (Court of Appeal unreported 2 February 2000)	Payment by cheque constitutes a conditional payment from the time the cheque is delivered; if honoured, payment relates back to that time.	The court relied on this precedent to establish that delivery of a cheque constitutes a conditional payment effective from the date of delivery, not clearance.
Marreco v Richardson [1908] 2 KB 584	Cheque or bill of exchange given for debt operates as conditional payment, actual payment ab initio if cheque is met.	Supported the principle that payment by cheque is conditional but effective upon delivery, consistent with Homes v Smith.
Director of Public Prosecutions v Turner [1974] AC 357	Confirmed the general application of the principle regarding conditional payment by cheque.	Used to affirm the general legal principle on payment by cheque applied in this case.
The Brimnes [1994] 2 Lloyd's Rep 241	Definition of payment as transfer of funds giving unconditional right to immediate use.	Referenced by the Plaintiff's counsel but ultimately rejected by the court in favor of the conditional payment principle.

Court's Reasoning and Analysis

The court analysed the meaning of "payment into court" in the context of the relevant Civil Procedure Rules (CPR) and Court Funds Rules (CFR). It held that the effective date of lodgement of a cheque is the date the cheque is received by the Court Funds Office, not the date when funds clear. This interpretation aligns with the plain language of CFR rule 16(6)(ii), which distinguishes between receipt of the cheque by the court and receipt of cleared funds by the Accountant General’s bank account. The court emphasised the importance of certainty in the effective date of payment, noting that requiring clearance before payment is effective would impose an unacceptable risk and uncertainty on payers.

The court rejected the Plaintiff's argument that payment by foreign currency cheque is not an approved method, relying on evidence that the Court Funds Office accepted the foreign currency cheque and that the Accountant General has not determined any later effective date for foreign currency cheques. The court found that the rules apply equally to sterling and foreign currency cheques.

Regarding the court order, the judge found no indication that the original judge intended to impose a meaning of payment into court other than that prescribed by the CPR and CFR. The court concluded that the Defendant complied with the order by lodging the cheque before the deadline.

On the Defendant’s alternative grounds concerning the exercise of discretion to relieve sanctions, the court noted the Defendant did not request relief below and that the judge was not obliged to exercise discretion sua sponte under the circumstances.

Finally, despite upholding the first ground of appeal, the court dismissed the appeal on the merits, concluding that the Defendant had no reasonable prospect of successfully establishing waiver of the Plaintiff’s right to withdraw the vessel, rendering any further proceedings unnecessary and an inefficient use of resources.

Holding and Implications

The court held that the effective date of payment into court by cheque is the date the cheque is received by the Court Funds Office, not the date the funds clear. This applies equally to foreign currency cheques.

The Defendant complied with the court order by lodging the cheque before the deadline.

However, the appeal was dismissed because the Defendant had no realistic prospect of success on the substantive issues at trial. The decision clarifies the interpretation of payment into court by cheque under the CPR and CFR, confirming that the date of receipt of the cheque governs the effective date of payment, thus providing certainty to parties making such payments. No new precedent was set beyond this clarification, and the court indicated that the Civil Procedure Rules Committee might consider suggested improvements to address practical issues raised in the judgment.